The highly anticipated US CPI report is coming, this is the trading guide provided by JPMorgan Chase

This Thursday, the US Bureau of Labor Statistics will release the June CPI inflation data, with the market expecting this key inflation indicator to further move towards the Federal Reserve's target. Wall Street expects that in June, the year-on-year increase in core CPI (excluding volatile food and energy) is expected to remain at 3.4% from May; month-on-month, it is expected to increase for the second consecutive month by 0.2%, potentially setting the smallest two-month increase since August last year. The overall CPI year-on-year increase is expected to decrease from 3.3% in May to 3.1%, the lowest record in five months; month-on-month, it is expected to rise by 0.1%, a slight increase from the previous 0%.

JPMorgan Chase traders have divided this week's US CPI report into six possible scenarios and based on this, they have provided their expectations on how the S&P 500 index will react to this report.

Scenario 1: CPI MoM increase by 0.15%-0.2%, probability 35%

In this scenario, JPMorgan Chase traders expect the S&P 500 index to rise by 0.5%-1%, as this would make the calls for a Fed rate cut in September deafening. A key factor is whether the cooling of inflation is attributed to housing prices, as this area is one of the important reasons for the stickiness of inflation, any substantial cooling in housing prices would be welcomed and may signal further inflation cooling.

Scenario 2: CPI MoM increase by 0.2%-0.25%, probability 30%

JPMorgan Chase believes that whether it is 0.2% or 0.25% is crucial for the initial market reaction, as rounding 0.25% to 0.3% could lead to an initial negative market reaction, while 0.2% might be seen as positive. In this scenario, JPMorgan Chase expects the S&P 500 index to rise by 0.25%-0.75%.

Scenario 3: CPI MoM increase by 0.25%-0.3%, probability 15%

In this scenario, the S&P 500 index is expected to decline by 0.75%-1.25%, as such a report may indicate an increase in housing-related inflation.

Scenario 4: CPI MoM increase by 0.1%-0.15%, probability 15%

Investors favor this outcome as it may indicate an acceleration in the cooling of commodity inflation. In this case, the S&P 500 index is expected to rise by 1%-1.5%.

Scenario 5: CPI MoM increase by more than 0.3%, probability 2.5%

JPMorgan Chase traders believe that such a hot inflation report will trigger a 1.25%-2.5% decline in the S&P 500 index. This is the first tail risk scenario, which means there could be a reversal in the process of core commodity inflation cooling, thereby pushing up monthly inflation data. Depending on the specific CPI data, coupled with last week's weak growth data, the best-case scenario for the market is a possible shift towards a recession narrative, while the worst-case scenario is a stagflation narrative.

Scenario 6: CPI MoM increase by less than 0.1%, probability 2.5%

This tail risk will drive the S&P 500 index up by 1%-1.75%, JPMorgan Chase traders pointed out that there may even be calls for an early rate cut in July.

Is the calm period of the US stock market coming to an end?

JPMorgan Chase trading department reminds investors to prepare for sharp volatility in the US stock market this week due to the CPI report after a long period of calm.

Andrew Tyler, head of market information for JPMorgan Chase's trading department in the US, said:

The price of at-the-money straddle options expiring on Thursday indicates that the options market is currently betting on a 0.9% fluctuation in the S&P 500 index by Thursday.

The latest CPI report in the US will be released before the US stock market opens on Thursday. Traders are betting that a slowdown in inflation will prompt the Fed to cut interest rates twice this year, which could trigger unusual market volatility.

Several former Fed officials believe that September is the appropriate time for a rate cut. Considering this, we remain tactically bullish, but with slightly reduced confidence